Securities

Some commentators — including Lynn Turner — have pointed out that Section 132 of the bailout draft appears to be an effort by Congress to empower the SEC to immediately suspend mark-to-market accounting, bypassing normal due process rule making with an “order” that would not require public notice or comment. [click to continue...]

Fair value accounting is coming under fire, now, from various directions including Newt Gingrich and a number of banks and economists. Apparently, some banks (though not all) think it unfair that Wachovia should be bought for $2.16 billion when it’s balance sheet reports $75.1 billion in net assets. [click to continue...]

“Talk of [financial] Armageddon . . . is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.” So says Harvard economist Jefffrey A. Miron, writing today at CNN.

What does Miron say government should do now?  For starters, stop the cruel pretense that people who can’t pay back a freely-negotiated mortgage should be homeowners: [click to continue...]

Haste makes waste. Any time 535 people reach an agreement this quickly, you know most of them did not even read it before signing off. That, sports fans, is how we got into this mess to begin with.

What remains to be seen is whether the measure will pass (probably) and whether the markets will be fooled (possibly). Early signs are not good with the Dow off 300 points, as I write. However, one should never overestimate the intelligence of investors who, after all, bought all of those mortgage-backed securities in the first place.

From a starting point of three pages last week, what appears to be the agreed bank bailout legislation runs to 109 pages of text that will generate millions if not billions in legal fees over the next five or ten years. My preliminary observations are as follows: [click to continue...]

The bank bailout “Agreement on Principles” now circulating is, at best, a broad outline. It is easily foreseeable that a final agreement will yet fail over disagreements about detailed implementing language.

For example, the Agreement specifies that the “Treasury Secretary is prohibited from acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law.” This statement is so broad that it could be used to nullify the entire deal since, as we all know, existing law does not allow the Treasury Secretary to do anything that this Agreement purports to allow him to do. [click to continue...]

“The market is waiting. The time to act is now.”  So said Investors Business Daily, yesterday.  In support of their call for Congress to just “sign off now” on Secretary Paulson’s plan to rescue U.S. banks, IBD’s editors point to the proposal’s brevity and “focus” and imagine — how is impossible to say — that it doesn’t give too much power to the Treasury: [click to continue...]

Too much power to the Treasury. Once you get past the sticker shock and the idea that a huge chunk of U.S. banking is on the verge of nationalization, the most troubling feature about the bank bail-out bill now before Congress is Section 8. [click to continue...]

As fur flies in Washington over technicalities of the government’s proposed bank bailout, ordinary mortals may feel left out of the conversation if for no other reason than the rarified vocabulary of the debate. What, for example, is this thing called “fair value accounting”? Why should anyone but accounting geeks care?

One answer comes courtesy of Lynn Turner, former SEC Chief Accountant, who today circulated a message reproduced below with his permission: [click to continue...]

“Sue them, jail them, make them pay,” cries Ann Woolner. “I’d fire Chris Cox,” shouts John McCain. Floyd Norris chimes in, “Had the S.E.C. gone over the records of Lehman and Bear Stearns with the vigilance it now promises for the shorts, we might not be in this mess.” Steve Covey: “Seek first to understand.” Whoa! How’d Covey get in there?

Too many pundits and politicos over the past couple of days have rushed to condemn what they simply do not understand. Woolner’s piece offers a nice illustration: [click to continue...]